Prime Minister David Cameron backed Bank of England Governor Mervyn King today after WikiLeaks published a cable by the U.S. ambassador citing the central bank chief’s concerns that the U.K. premier lacked experience.
Cameron “thinks he’s doing a good job,” his spokesman, Steve Field, told reporters today in London. “The issue of confidence simply does not arise. My experience is the Bank of England governor makes lots of statements on economic policy. That’s what you’d expect.”
The support for King, 62, caps a week of focus on the governor’s role in Britain’s political system. Policy maker Adam Posen said on Nov. 25 he was “uncomfortable” with the bank’s support for Cameron’s deficit reduction plans and former finance minister Alistair Darling cautioned the bank this week against getting too close to any political party. Former central bank policy maker David Blanchflower today called on King to quit.
U.S. Ambassador Louis Susman wrote to Secretary of State Hillary Clinton that in a Feb. 16 meeting with the governor, before the U.K. election in May, “King expressed great concern about Conservative leaders’ lack of experience,” the Guardian reported on its website yesterday, publishing the memo obtained by the WikiLeaks website. Cameron was leader of the opposition at the time.
A Bank of England spokesman said in a telephone interview today that the governor has a very effective working relationship with both the prime minister and Chancellor of the Exchequer George Osborne.
King “opined that party leader David Cameron and Shadow Chancellor George Osborne have not fully grasped the pressures they will face from different groups when attempting to cut spending,” the Guardian cited Susman’s confidential diplomatic cable as saying.
Before the election, King lobbied publicly for a “credible” plan to curb the U.K.’s biggest peacetime deficit. On May 12, after Cameron’s Conservatives formed their coalition with the Liberal Democrats, the governor said he was “very pleased” with the new government’s budget-cutting proposals.
Posen told a panel of lawmakers led by Conservative Andrew Tyrie that he was uncomfortable with the central bank’s backing of government spending cuts in its Inflation Report in May. He said the support was “too political, too much of a statement.”
“The bank must think long and hard about what it says,” Darling wrote in the Financial Times on Nov. 29. “To become identified with one political party would be fatal to its reputation. It is imperative that the independence of the bank remain absolute.”
The central bank won autonomy in setting monetary policy in 1997. Bank and government officials tended to refrain since then from commenting on each others’ policies. The bank’s authority has become entangled with government funding plans since policy makers began a program in March last year to buy gilts to stoke economic recovery.
Blanchflower, who was on the bank’s rate-setting panel from June 2006 to May 2009, wrote today on the Guardian’s website that King should resign over his remarks on the public finances. The Bank of England spokesman declined to comment on the remarks.
“It’s the compromise of the independence of Bank of England that’s the issue,” Blanchflower, who is a columnist for Bloomberg News, said in a Bloomberg Television interview. “It’s been an ongoing issue for some time, and I think this is the final straw.”
When Blanchflower was on the Monetary Policy Committee, “we were told very sensibly that we should stay out of party political issues,” he said. “That advice was given directly to me by the governor himself, so it’s rather a surprise that he doesn’t follow that advice.”
Were politicians from opposing parties to seek the governor’s opinion, “it’s very hard for him to give them advice that they would trust,” Blanchflower said.